There has been a lot of talks lately surrounding the government Help to Buy scheme and whether or not it’s on its last legs. Many reports state it’s right to be cautious about the Help to Buy mortgage scheme, and housing institutions, the government and even the press are saying that maybe its time is up.
It’s a new build scheme that has had its difficulties over the years, with some thinking that it’s not a good deal at all and the properties that are eligible for the scheme as overpriced. Not only that, the price of the homes come in at almost 15% higher than their actual market value. It’s also said that the Help to Buy mortgage scheme has been the cause of the enormous upswing in house prices, and all by stoking the demand.
Help to Buy Scheme History
Launched in 2013 by the previous Chancellor George Osborne, the Help to Buy scheme was designed to get more first time buyers onto the property ladder. It was also used to incentivise the purchase of new build homes that were being quickly built around the country. How it works, is that the government will add 20% of the purchase price up to £600,000 – or 40% in London – and gives the housebuilders the security that people will buy the homes that they have designed and built.
Initially, the Help to Buy scheme was a huge success. The public finally had a foothold on the housing market, which was drifting further away with frozen wages and higher costs everywhere else. There were nearly 200,000 properties purchased between April 2013 and September 2018, with a 100,000 increase in the houses being built. Of course, it’s not certain whether this is solely due to the Help to Buy scheme or not.
It’s been initially set to run until 2021, but this has been extended by two years to 2023 by the government. It’s now going to be restricted to just first-time buyers, and there will be a price cap on homes that are regional from 2021.
What Happens If It Collapses?
The Help to Buy scheme has been the fuel behind higher house prices, which has led people to fear the consequences of scrapping the scheme altogether. Those with a smaller deposit who are desperate to get onto the property ladder could face some adverse effects.
The worst case scenario would be that house prices could fall dramatically without the scheme, which could cause some first-time buyers to sit in negative equity with their home. This is where the value of the loan is worth more than the house and makes it impossible to sell. You could also not be able to switch lenders if you wanted to upgrade your mortgage.
Newly built homes often attract higher prices, but with the house prices dropping with scrapping the scheme, this could be worse. With all the chatter in the press, it’s looking like Help to Buy has come under scrutiny as to whether it will be continued. Watch this space!